Implications arising from the key drivers of retail conduct risk
Produced in partnership with Rosanna Bryant of Addleshaw Goddard
Implications arising from the key drivers of retail conduct risk

The following Financial Services guidance note Produced in partnership with Rosanna Bryant of Addleshaw Goddard provides comprehensive and up to date legal information covering:

  • Implications arising from the key drivers of retail conduct risk
  • Rising pressure on business model adjustment
  • Failure to balance prudential soundness and profitability with good consumer outcomes
  • Misalignment of market performance expectations and underlying fundamentals

Conduct risk is the corner stone of the Financial Conduct Authority's (FCA) regulatory approach where:

  1. consumers get financial services and products that meet their needs from firms they can trust

  2. markets and financial systems are sound, stable and resilient with transparent pricing information, and

  3. firms compete effectively, with the interests of their customers and the integrity of markets at the heart of how they run their businesses

The FCA recognises that conduct risks can evolve in a number of different ways in different markets and over time, which can pose a risk to the FCA's objectives. Conduct risk can present itself in various different ways but are typically driven by the same underlying issues:

  1. Inherent factors—these are characteristics found within financial markets and their participants. These are drivers of conduct risk that interact to produce poor choices and outcomes for consumers in financial markets. The combination of supply-side market failures with demand-side weaknesses can result in poor customer outcomes. With these factors the operation of behavioural economics plays a key role whereby information asymmetries (where one party in a transaction has more or better information than the other) and consumer biases (systemic behaviours that consumers and market participants demonstrate in decision-making) can interact to mean that consumers make poor decisions when they purchase financial services products.

  2. Structures and behaviours—these are the